2022 (6) TMI 286 - HC - Companies Law

Court upholds decision on Auditor's obligations under Companies Act

Sanjay Sreesha Versus Serious Fraud Investigation Office Ministry of Corporate Affairs

Sanjay Sreesha Versus Serious Fraud Investigation Office Ministry of Corporate Affairs - TMI Issues:Petition to quash criminal proceedings under Section 482 of Cr.P.C for alleged violation of Section 240(3) of the Companies Act, 1956.Analysis:1. The petitioner argued that without making the firm an accused, he cannot be prosecuted for the alleged offence under Section 240(3) of the Companies Act. The petitioner contended that as a partner in the firm, he cannot be vicariously held liable for penal provisions.2. The respondent countered, stating that the petitioner, being a Chartered Accountant and an Auditor appointed by the Company, is obligated to provide information to investigating agencies under Sections 239 and 240 of the Companies Act. The respondent argued that the petitioner's failure to furnish information led to the criminal complaint against him.3. The Court analyzed Section 226 of the Companies Act, which outlines the qualifications and disqualifications of auditors. It was noted that the petitioner, as a Chartered Accountant running a firm, was appointed as an auditor by the resolution of the Company, meeting the eligibility criteria under the Act.4. The Court considered precedents, including the Supreme Court's ruling in Aneeta Hada's case, emphasizing that without making the Company an accused, individuals like Directors cannot be held liable for the company's offences. The Court also examined the judgment in CBI Vs. K. Narayana Rao, highlighting the distinction between legal advisors and statutory auditors.5. The Court deliberated on the nature of partnership firms, emphasizing that a partnership firm does not have a separate legal persona distinct from its partners. It was clarified that partners in a firm collectively constitute the firm, and any offence committed by the firm is attributed to the partners collectively.6. Ultimately, the Court dismissed the petitioner's argument that he cannot be prosecuted without making the firm an accused. It concluded that as an Auditor appointed under the Companies Act, the petitioner had statutory duties to provide information as required by investigating agencies. Therefore, the Trial Court's decision to take cognizance against the petitioner for the alleged offence under Section 240(3) of the Companies Act was upheld, and the criminal petition was dismissed.